2025 (4) TMI 1461 - HC - Income Tax

Reopening of assessment u/s 147 - Reopening on a protective basis - as alleged that the Petitioner assessee has received cash for assessment year 2010-11 based on the findings recorded in the assessment order for assessment year 2011-12 - HELD THAT - The issue of addition on the basis of the allegation of cash received was not the subject matter of inquiry during the course of the assessment proceedings u/s 143 (3). The case is reopened based on the findings for assessment year 2011-12 wherein the officer has worked out the addition on account of cash received for various years but has added the full amount in assessment year 2011-12 even though certain agreements for sale pertained to assessment year 2010-11. Since the amount was already added in assessment year 2011-12 on a substantive basis and certain transactions pertain to assessment year 2010-11 the AO on a protective basis has reopened the case for assessment year 2010-11. The jurisdiction to reopen the case has to be examined based on the facts prevailing on the date of recording the reasons and on the date of recording the reasons the order of the CIT(A) for assessment year 2011-12 was not in existence and therefore the argument made by Petitioner that since the CIT (Appeal) s order for the assessment year 2011-12 was available on the date of rejecting the objection the AO ought to have consider it is to be rejected. In any case the CIT(Appeal) s order was not final and was subject matter of appeal before the Tribunal and therefore even on this ground the submission made by the Petitioner has to be rejected. No infirmity in the proposed reopening of the case since the issue of the alleged cash received was not the subject matter of investigation during the course of the original assessment proceedings and the reopening is made within a period of four years from the end of the relevant assessment year and that constitutes sufficient material based on the findings and reasons given in assessment year 2011-12 and further the proposed proceedings are taken only on protective basis. Hon ble Supreme Court in the case of NDTV Ltd. 2020 (4) TMI 133 - SUPREME COURT has held that reassessment proceedings can be initiated based on findings in subsequent assessment years order. In our view the ratio of this decision is squarely applicable to the facts of the present.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Court in this matter include:

(a) Whether the reassessment notice issued under Section 148 of the Income Tax Act, 1961 ("the Act") for the assessment year 2010-11 is valid and sustainable, given that the original assessment under Section 143(3) was completed and the reopening was initiated within four years from the end of the relevant assessment year;

(b) Whether the reasons recorded for reopening the assessment, based on findings in the subsequent assessment year 2011-12, constitute sufficient material to justify reopening under Section 147 of the Act;

(c) Whether the reopening on a "protective basis" to safeguard the interest of revenue is permissible when the alleged escaped income was already added in a subsequent assessment year;

(d) The applicability of judicial precedents, particularly the Supreme Court's ruling in NDTV Ltd. v. DCIT, regarding the validity of reassessment proceedings initiated on the basis of findings in subsequent assessment years;

(e) Whether the Assessing Officer was obligated to consider the appellate order of the Commissioner of Income Tax (Appeal) for the assessment year 2011-12, which was available at the time of rejecting the objection to reopening;

(f) The scope of jurisdiction and discretion of the Assessing Officer in reopening assessments within the prescribed time limits under the Act.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a): Validity of Reassessment Notice under Section 148 within Four-Year Period

Legal Framework and Precedents: Section 148 of the Income Tax Act empowers the Assessing Officer to issue a notice for reassessment if there is reason to believe that income chargeable to tax has escaped assessment. The limitation period for such reopening is generally four years from the end of the relevant assessment year. The reopening must be based on tangible material and reasons recorded in writing.

Court's Interpretation and Reasoning: The Court noted that the reassessment notice was issued on 24 March 2015, within four years from the end of the assessment year 2010-11. The original assessment under Section 143(3) was completed on 7 March 2013. The reopening was thus within the statutory limitation period.

Application of Law to Facts: Since the reopening notice was issued within the prescribed four-year period and the reasons were recorded in writing, the Court found no infirmity in the timing or procedural compliance of the reassessment notice.

Conclusion: The reassessment notice under Section 148 is validly issued within the limitation period.

Issue (b): Sufficiency and Nature of Reasons Recorded for Reopening Based on Subsequent Assessment Year Findings

Legal Framework and Precedents: Section 147 requires the Assessing Officer to have "reason to believe" that income has escaped assessment. The Supreme Court in NDTV Ltd. v. DCIT clarified that reassessment proceedings can be initiated based on findings in subsequent assessment years, provided there is tangible material.

Court's Interpretation and Reasoning: The reasons recorded for reopening stated that during assessment proceedings for AY 2011-12, cash payments amounting to Rs. 1,85,66,920/- relevant to AY 2010-11 were identified but added in AY 2011-12. The Assessing Officer believed income had escaped assessment for AY 2010-11 and reopened the assessment on a protective basis.

The Court emphasized that the issue of cash receipts was not examined during the original AY 2010-11 assessment and the reopening was based on new material found during AY 2011-12 proceedings. The Court held that the reopening was justified by this fresh material.

Key Evidence and Findings: The large cash receipts identified during the AY 2011-12 assessment, which pertained partly to AY 2010-11, constituted new material. The original AY 2010-11 assessment had not addressed this issue.

Application of Law to Facts: The Court applied the principle from NDTV Ltd. that reassessment can be based on subsequent years' findings and found the Assessing Officer's reasons sufficient to constitute "reason to believe."

Treatment of Competing Arguments: The Petitioner argued that since the cash receipts were already added in AY 2011-12, reopening AY 2010-11 was unwarranted. The Court rejected this, noting that the addition in AY 2011-12 was substantive but did not preclude reopening AY 2010-11 on a protective basis for transactions relevant to that year.

Conclusion: The reasons recorded for reopening are sufficient and valid, based on new material from subsequent assessment proceedings.

Issue (c): Legality of Reopening on Protective Basis When Income Was Added in Subsequent Year

Legal Framework: The concept of reopening on a protective basis is recognized where the Assessing Officer seeks to safeguard the revenue's interest pending finalization of related assessments or appeals.

Court's Interpretation and Reasoning: The Court observed that the Assessing Officer reopened AY 2010-11 assessment protectively because certain agreements and cash receipts pertained to that year, though the entire amount was added in AY 2011-12. The reopening was not to double-tax but to ensure correct assessment in the correct year.

Application of Law to Facts: Given the overlapping transactions and the protective nature of the reopening, the Court held this approach permissible and not violative of principles of natural justice or tax law.

Conclusion: Reopening on a protective basis is lawful and justified under the circumstances.

Issue (d): Applicability of Supreme Court Precedent (NDTV Ltd.) on Reopening Based on Subsequent Assessment Year Findings

Legal Framework and Precedents: The Supreme Court in NDTV Ltd. held that reassessment proceedings can be initiated based on findings in subsequent assessment years, provided there is tangible material and the Assessing Officer has reason to believe income has escaped assessment.

Court's Interpretation and Reasoning: The Court found the ratio of NDTV Ltd. squarely applicable, as the present case involved reopening AY 2010-11 based on material found during AY 2011-12 assessment proceedings.

Application of Law to Facts: The Court applied this principle to uphold the reopening notice.

Conclusion: The precedent supports the validity of reopening in the present facts.

Issue (e): Obligation to Consider Commissioner of Income Tax (Appeal) Order Available at Time of Rejecting Objection

Legal Framework: The Assessing Officer is required to consider all relevant material before rejecting objections to reopening. However, appellate orders are not final until all appeals are exhausted.

Court's Interpretation and Reasoning: The Court noted that at the time of recording reasons for reopening, the appellate order of the Commissioner of Income Tax (Appeal) for AY 2011-12 was not in existence. Even when it was available at the time of rejecting objections, it was not final and was subject to further appeal before the Tribunal.

Treatment of Competing Arguments: The Petitioner argued that the Assessing Officer should have considered the appellate order to reject reopening. The Court rejected this, emphasizing the non-finality of the appellate order and the Assessing Officer's discretion.

Conclusion: The Assessing Officer was not obliged to consider the appellate order as a bar to reopening.

Issue (f): Jurisdiction and Discretion of Assessing Officer in Reopening Assessments

Legal Framework: The Assessing Officer's jurisdiction to reopen is circumscribed by the statutory provisions, including limitation periods and requirement of reasons recorded in writing. The discretion must be exercised reasonably and based on material.

Court's Interpretation and Reasoning: The Court found that the Assessing Officer exercised jurisdiction within the prescribed four-year period, based on tangible material and reasons recorded. The reopening was not arbitrary but founded on findings in subsequent assessment proceedings.

Conclusion: The Assessing Officer acted within jurisdiction and discretion in reopening the assessment.

3. SIGNIFICANT HOLDINGS

The Court held that:

"We do not find any infirmity in the proposed reopening of the case, since the issue of the alleged cash received was not the subject matter of investigation during the course of the original assessment proceedings, and the reopening is made within a period of four years from the end of the relevant assessment year and that constitutes sufficient material based on the findings and reasons given in assessment year 2011-12 and further the proposed proceedings are taken only on protective basis."

The Court further relied on the Supreme Court's ruling in NDTV Ltd. v. DCIT (2020) stating:

"Reassessment proceedings can be initiated based on findings in subsequent assessment years order."

The Court concluded that the reopening notice under Section 148 dated 24 March 2015 is valid and dismissed the petition challenging it.

Core principles established include:

- Reopening of assessment under Section 148